Freedom recommended buying shares in Marriott, Hilton, and other hotel chains. What's the opportunity here?

Analysts at Freedom Broker have initiated coverage of five stocks in the hotel sector, assigning a “Buy” rating to Marriott International, Hilton, Hyatt, and Wyndham Hotels, according to Barron’s. According to the analysts, the U.S. hotel sector has returned to more familiar operating conditions following the post-pandemic boom, when stock gains were driven by rising room rates. At the same time, high interest rates are limiting the construction of new hotels, which benefits existing ones.

According to Freedom’s forecast, the number of new hotels will increase by just 0.4% this year and by 0.6% next year. This supports occupancy rates and prices at existing properties, analysts explain. High interest rates and rising construction costs are hindering expansion. Chains are growing mainly by converting independent hotels and competitors’ properties to their own brands: in the first half of the year, for example, 40% of new Marriott hotels opened in this way.

Hilton is expanding its room count faster than its competitors: in the second quarter, the number of rooms increased by 6.1%. At the same time, nearly half of the company’s hotels scheduled to open are already under construction. Freedom Broker’s price target for the company’s stock is $359, which implies growth potential of nearly 10% over the next 12 months.

Marriott is considered the industry leader by Barron’s: in addition to room rates, the chain generates revenue from its Bonvoy loyalty program, co-branded credit cards, and brand licensing. According to Freedom, the company’s business model allows it to increase earnings per share without investing in expensive real estate. The broker’s price target for Marriott stock is $408—which is also 10% above the current market price.

Hyatt is lagging behind its competitors: since the start of the year, its stock has risen by only 1.6%, while Marriott’s market value has increased by nearly 20% and Hilton’s by 15%. Investors fear that the company may not meet its annual earnings forecast due to a decline in tourist traffic to Mexico amid security concerns and a brown algae bloom, Barron’s reports. Mizuho analyst Ben Chayken, however, considers these concerns to be overblown: in his view, the decline has created an attractive entry point. Freedom also sees positives in Hyatt: the company owns almost no real estate directly and has a large portfolio of future openings relative to its size, although the execution of these plans remains a key risk. The $192 price target implies 20% upside potential.

Analysts assigned a "Hold" rating to Choice Hotels shares, noting that Choice and Wyndham are trading at lower prices than their competitors, are closer to the lower end of their own historical range, and are growing more slowly than more expensive chains.

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